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Tuesday, April 10, 2018

Blog: Statistics, the Brexit Gap, and the Jersey Solution

JFA Committee Member Elliot Refson takes a look at figures quoted by the European Commission as part of a package of proposed amendments to cross-border investment fund regulations and explores how Jersey can provide a solution to benefit both managers and investors in the UK and EU...

Figures published last month by the European Commission as part of its proposed package of amendments to regulation surrounding the cross-border distribution of collective investment funds made for interesting reading.

By the Commission’s own admission, “only 37 % of UCITS and about 3 % of AIFs are registered for sale in more than three Member States”. Otherwise put, the vast majority of EU-based AIFs are concentrated on three investor markets or less. Sure, an AIFMD passport is the best bet for the 3% of AIFs wanting to market across the EU, but it begs the question: for the vast majority of funds, is an AIFMD passport really the most efficient and cost-effective means of accessing EU investor capital?

For AIFs, private placement is a tried and tested model for distributing into limited numbers of specific markets. It offers flexibility, speed to market, appropriate regulatory oversight and cost-effectiveness. By the EU’s own statistics, therefore, 97% of all EU-focussed AIFs would be most efficiently and cost-effectively marketed from a Jersey base, outside of the full scope of the AIFMD.

It’s why Jersey continues to see strong growth from AIFMs wanting to make use of the regime. At the end of 2017, there were 149 Jersey based AIFM’s marketing over 291 funds into the UK and the EU using the private placement route. This represents three year growth of 304% and 165% respectively, as reported by the Jersey Financial Services Commission.

And there’s a further problem on the horizon - over 75% of all European investment emanates from the UK, the Netherlands and Switzerland. Post-Brexit, only one of those will be a EU Member State, and there is no guarantee that UK managers will qualify for the AIFMD passport, restricting their ability to market in the EU. It also means that EU AIFMs will be restricted in marketing into the UK. Again, Jersey can provide the solution here, having good relations with all three of those markets.

Which is why we fully expect to see strong sustained interest in private placement through Jersey in the lead up to Brexit, with AIFMs establishing either a full or hosted presence in Jersey that can support them in bridging the gap between the UK and the EU, enable them to market into both via private placement, and ultimately generate better future returns for investors.